Minding Your Money: Payday LendingCritics say short-term loans charge big fees that trap people in cycles of debt. Lenders argue they provide a vital community service to folks strapped for cash. Tony Cox talks with Mary Jackson of the Community Financial Services Association of America, a trade group representing more than half of the nation's payday lenders.

We continue our series Minding Your Money with the what if: You need to pay the rent but you're a week away from payday. Each year, thousands turned to so-called payday lenders for short-term loans, usually just a few hundred dollars, but these small loans can mean big bucks for lenders.

The industry generated a $4 billion profit in 2006. Critic says payday lenders prey on folks in dire straights, and that's why organizations across the U.S. want to change the laws that say who has to pay how much and when. We'll hear from these groups in a few minutes.

But first, Mary Jackson. She works for the Community Financial Services Association of America, that's a trade group representing more than half of the nation's payday lenders. Jackson chairs the group's Federal Affairs Committee, and she told NPR's Tony Cox how a costumer gets a payday loan.

Ms. MARY JACKSON (Chair, Federal Affairs Committee, Community Financial Services of America): A borrower, you know, will come into our store and there's a couple of things that they have to do. They have to first provide the fact that they are a checking account holder. They also have to have a job. Also we look out, you know, where they've lived to give us some idea of their stability and the ability to repay their loan.

Once they meet certain criteria, we go ahead and offer a customer a payday loan if they qualify. And most people will pay their loan back on time, but just like any other lending or consumer finance vehicle, such as a credit card, you will have those that are having difficulty meeting their obligation on payday, and that's why the Community Financial Services Association instituted an extended payment plan to allow for those people to pay off their loan and get out of debt.

TONY COX: The economic underclass in this country is largely people of color, and your Web site says that it is a myth that payday lenders take advantage of people who are poor and minority. What percentage of your business is made up of minorities?

Ms. JACKSON: Because we have to follow the rules, the banking rules that you can't really ask folks their class or their ethnicity. They can opt to answer those questions. Our industry hasn't done that, but I can tell you that the charges that we target minorities are untrue.

COX: As groups push for reform of state lending laws, your industry has tried to make some compromises. You mentioned extended payment plans as one example. What else have you tried to do to reform the industry?

Ms. JACKSON: We do agree on limiting the amount of rollovers. We do give customers the right to rescind their transaction, usually by the next business day, if they change their mind. We also make sure we have appropriate collection practices for those that are unable to pay their loan in the prescribed time period. We are working to make legislators and regulators understand the need that is out there and that a licensed, regulated industry is the best way to go.

COX: What I did not hear you say was that you support caps of some kind, any kind.

Ms. JACKSON: Well, yeah, we have supported caps on rates. We've supported caps on the amount of loan. But, you know, caps are dangerous because the very people that you are designing to protect are now the victims of not getting access to credit or getting the access to the amount that they need. And CFSA members, as well as other payday advance members, we are lenders, we are making sure that we can get paid back. So, you know, if we do make a bad loan and don't get paid back, we've made a bad decision. And arbitrary numbers like certain APRs are very dangerous because it will definitely hurt the very consumers you're trying to help.

COX: Mary, thank you very much.

Ms. JACKSON: Thank you, Tony.

CHIDEYA: That was NPR's Tony Cox speaking with Mary Jackson. She's with the Community Financial Services Association of America.

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